An Urban's Rural View

The Soy Sauce Shock and the TPP Withdrawal

The average age of the American farmer being 58, many readers of this blog were around for, even if they don't remember, a 34-year-old incident that severely undermined Japanese confidence in the U.S. as a supplier of agricultural products. The Japanese referred to it as the "shoyu shokku," or soy sauce shock. I toured a soy sauce factory during my recent trip to Japan, which is why the incident is on my mind. I wonder: Are there lessons in that event for U.S.-Japan trade relations today?

What shocked Japan in June 1973 ended up being a self-inflicted wound for the U.S. Spooked by rising soybean prices at a time of accelerating consumer-price inflation, the Nixon administration embargoed soybean exports. Soybeans are a raw ingredient of many of the most important items in the Japanese diet, including soy sauce, miso soup and tofu. The U.S. had supplied nearly all of Japan's import needs until it suddenly imposed the embargo. So loud were the screams from Tokyo that within days Nixon was forced to begin backing down.

The damage, however, had been done. Overseas customers, including Japan, started looking elsewhere for supplies. Brazilian farmers started switching from coffee, cotton, corn and wheat to soybeans, and Japanese companies contributed to the switch by investing in Brazilian soybean production. With the U.S. acquiring a reputation as an unreliable supplier, the U.S. share of world soybean exports began to fall.

The soy sauce factory I visited in Nara prefecture is a mom-and-pop operation with an output so small you can only buy its products locally. Its equipment consists of a couple of machines that look like they've been around since at least 1973 and a handful of 100-year-old cedar barrels as tall as Sasquatch. In these barrels a mix of water, salt, soybeans and wheat sits for two-and-a-half years on its way to becoming soy sauce.

Where, I asked, do the soybeans and wheat come from? "America," the owner replied. The beans could, however, just as easily have come from Brazil, Canada or even China. America's share of Japan's soybean imports has dwindled to around 50%.

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The lesson in this boycott story for today? If we take our ball and bat and go home, the game doesn't end. Our counterparts may at first experience shock, but they find ways to continue playing without us. If and when we return to the field, the balance of power in the game may have changed to our disadvantage.

The contemporary parallel to Nixon's soybean boycott is the U.S. withdrawal from the Trans-Pacific Partnership trade agreement. That 12-nation deal committed Japan to significant reductions in its barriers to foreign agricultural products. Despite that, we've taken our ball and bat and gone home.

I was especially impressed that in the TPP Japan committed to lowering its tariff on chilled and frozen beef from 38.5% to 9% over 16 years. As a correspondent based in Tokyo in the bad old trade-friction days of the 1980s and '90s, I remember Japan's finance minister telling me with a straight face, "We Japanese can't digest American beef because our stomachs are built differently from American stomachs."

President Donald Trump, who thought the multilateral TPP was a "horrible deal," promised to replace it by negotiating a stronger U.S.-Japan bilateral agreement. But it takes two to negotiate a bilateral and the Japanese -- surprise, surprise -- seem to have other ideas.

They recently convened a meeting of the remaining 11 TPP countries aimed at completing that agreement without the U.S. Japanese commentators made it clear their government hopes the U.S. will eventually sign back on to TPP. That hope may be unrealistic, but as long as the Japanese entertain hope for a multilateral deal they will be unlikely to offer much to the U.S. in a bilateral negotiation.

At the same time -- as if to underscore their commitment to big multilateral deals, with or without the U.S. -- the Japanese announced agreement with the European Union on a trade pact that would rival the North American Free Trade Agreement in size. It would also put a variety of American products, including agricultural products, at a serious disadvantage in the Japanese market.

One of President Barack Obama's arguments for TPP was that it set American rules for trade in Asia while without it, Asian trade would play by China's rules. However that prediction turns out -- and in pushing TPP without the U.S., Japan is taking the lead in trying to stop it -- a more immediate effect is that some U.S. agricultural exporters, especially dairy exporters, will play in Japan by Europe's rules. That's because the Japan-EU pact recognizes Europe's "geographical indications," which prohibit competitors from naming products after European regions.

Farmers and ranchers can be thankful that so far, at least, President Trump's trade policies have been less protectionist than his rhetoric. The one campaign promise on trade he has kept is TPP withdrawal. Not only are we out, but serious talks on a bilateral agreement have not really even begun, and those talks won't be easy when they do get underway.

The game goes on without us. One way or the other, it's time to start playing again.

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Urban Lehner

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